What is a Profit & Loss Statement?
1 February 2020
Simply put, bookkeeping is the process of recording your business’ financial transactions such as its sales, purchases, payments, and receipts, on a daily basis.
These records must be accurate and up-to-date and should be able to provide a clear picture of the performance of your business after a specific period.
How does Bookkeeping work?
Whenever anyone buys anything from you or sells anything to you, you have to record the exact details of the transaction and keep the documents used to transact the business as backup evidence.
You would then use the individual records you have made to set up financial statements at the end of a period, which could be daily, weekly, monthly, or yearly.
Why do you need Bookkeeping?
Bookkeeping may involve historical records, but these records are very vital to your business.
Some of the very important reasons include:
Bookkeeping provides a true and accurate picture of your business.
To know how your business is performing, whether you’re making profits or losses, the only way you can know these is if you keep accurate records.
There is the issue of taxes; you have to be able to know how much taxes you need to pay at the end of every year.
It helps you easily forecast and create plans for your business.
By looking at your bookkeeping records, you can easily say, “We always sell 500 units of X product every July so this year, we should work on increasing our sales to XX units.”
If you have investors or third parties such as shareholders or partners who would be interested in the performance of your business, a well-kept book is the only way you can show them how your business is doing.
Through bookkeeping, you can easily figure out thefts, dishonesty, or poor performances if you have employees or people running your business for you.
Another benefit you can derive from adequate business bookkeeping is that you can use your financial statements as proofs of business performance if you need to secure a business loan.
Bookkeeping shall also help you monitor your business expenses about income.
With that understanding on the importance of bookkeeping, do you still want to leave it unattended?
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